Monday, 16 August 2010

21:22 BST - SPX End of Day Update

The Options referred to below are different ways to count the move down from 1219.80 to 1010.91 and you can see them on the 60 min counts page, which will put the charts below into context.

The 10 min charts below show various ways to count the rally from the 1010.91 low on 1 July in the context of the larger picture shown on those 60 min charts.

On the charts of Options 1 and 2, I'm showing a single zig zag. On the chart of Option 3, there is a triple zig zag,  on the chart of Option 4 there's a double zig zag and on the chart of Option 5, there is a single zig zag with an ending diagonal for wave (c). On these 10 min charts, all of these moves are shown as having topped at 1129.24. See the 60 min counts page for what this means, if correct, in the context of each Option.

The count from the high of 1129.24 is the same for all of these Options, assuming the rally off the July low was corrective as these 10 min charts assume.

Here are the 10 min charts of each Option:

Options 1 and 2 - from 1010.91, a double zig zag:

The chart relates to the count for Option 2, but the count for Option 1 is pretty much the same into the high, just one degree lower, namely, a single zig zag which is complete at 1129.24. 

Option 3 - from 1010.91, a triple zig zag:

On this Option, I've shown the rally from the July low as a triple zig zag, also complete at the 1129.24 high.

Option 4 - from 1010.91, a double zig zag:

A double zig zag count also complete at the 1129.24 high, is shown on the chart of this Option.

Option 5 - from 1010.91, a single zig zag with an ending diagonal for wave (c):

On the chart of this Option I've shown a single zig zag count, with an ending diagonal wave (c).

On all of the above bearish (Options 4 and 5 are only  near term bearish) counts, if we  can count a corrective wave high at 1129.24, it doesn't really matter whether its a single, double or triple zig zag. The important thing now is what has happened since the high at 1129.24.

Here is the 1 min chart of the decline from 1129.24. This count applies to all of the Options shown above, although the labels, including the degrees of those labels, relate to Option 2:

SPX 1 min - decline from 1129.24:

You can see from the 1 min chart that there does appear to be a clean 5 waves down from the 1129.24 high to the low at 1069.49. This would be wave i down and we would now be correcting in wave ii up.  If its right that the rally from the low at 1069.49 to the high at 1082.62 was 5 waves, then it means that wave ii is formimg a zig zag.  In turn, this means that wave [B] of ii can't move below the low of wave i.  If it does, then it may be that a double three would have to be counted from the low, instead of a straightforward zig zag.

Or, it may be that one of the alternatives mentioned on the chart is playing out (the second one below is actually the running flat variation of the expanded flat alternative labelled on the chart).

The first of those is that the low at 1069.49 was only wave (1) of [5], with the subsequent rally being wave (2) of [5]. This is quite possible - I can count the rally as a double or single zig zag.  A single zig zag would put wave A of (2) at 1081.40, followed by a wave B pullback, then the rally to the high at 1082.62 would be wave C of (2). This possibility remains intact as long as the high at 1082.62 holds, assuming the decline from there is all or part of wave 1 of (3) of [5].

The second alternative count, if we had 5 waves up from 1069.49 and take out that low before we make a new high,  is that wave [4] of i topped today as a running flat type correction. The 5 waves up from the low would be wave (C) of that running flat, with the decline from there being part of wave [5] of i. This would be a variation on this alternative of wave [4] still in progress which I have on the chart, which assumes that we're seeing a zig zag up from 1069.49, for wave (Y) of [4] for an expanded flat type correction.

Here's a close up of the count showing the end of the triangle I have labelled for wave [4]. Its the chart I've been posting during today:

SPX 1 min close up:

If we don't take out the 1069.49 low and go on to make new highs above 1082.62, then the main count putting us in wave ii up or the alternative which has us still in wave [4] of i would be the most likely counts. The alternate that has us in wave (2) of [5] would become less likely if we take out 1082.62 and would be ruled out if we take out 1083.28. 

Despite today's initial decline, the two bullish counts I've been posting under the bullish alternate for Option 4 remain intact. You can see the bigger picture of the bullish alternate  on the second chart under the Zig Zag from March 2009 page, where it is shown as the alternate count.

I have two possible ways to count this bullish alternate:

SPX 1 min - bullish alternate under Option 4, impulse up from 1010.91:

This count won't be eliminated until we drop below 1056.88.

SPX 60 min - bullish alternate under Option 4, leading diagonal from 1010.91:

This count will only be invalidated if we drop below 1010.91. However, please note my comments about that low on the 60 min counts page.

So, we can count 5 waves down from 1129.24 to 1069.49. If that's right, giving us our 1st wave down in a larger decline on the bearish counts, we are now in a 2nd wave retracement. This means that the high of 1129.24 cannot be taken out. If it is, these bearish counts, as labelled, will be invalidated.

It wouldn't mean that all bearish counts would be off the table, it would just mean a delay in the resumption of the bear case - see the explanation of what a high above 1129.24 (and 1131.23) could be on each Option on the 60 min counts page.

If we're in wave ii up and its forming a zig zag as the main labelling suggests, assuming wave [B] of ii bottomed at 1075.16, if [C] is to equal [A], we would see the next leg up get to about 1088. That would be less than a 38.2% retracement of the decline from 1129.24, perhaps a bit shallow for a 2nd wave. So, we might have to be prepared for a more substantial [C] wave, say a 1.618 extension of wave [A], which would take us up to about 1096, approximately a 50% retracement. If we only make a 38.2% retracement, it would probably make it more likely that the move up from 1069.49 was part of an on-going wave [4] of i.

Even though we're in a 2nd wave retracement on the main count and it could go all the way back up to the 1129.24 high and still be valid, ideally, it will retrace substantially less than that. The 50% retracement level mentioned above, if [C] were to equal [A] is about where I'd like it to end, especially if we are in 3rd waves down on most of the bearish counts. Anything too much deeper may have us on alert that the bearish count may be getting into trouble.